MARC has affirmed its short-term rating of MARC-2IS on Bina Darulaman Berhad’s (BDB) RM100.0 million Islamic Commercial Papers (ICP) Programme.
The affirmed rating incorporates BDB’s status as a Kedah state-owned entity that has benefitted from state support in securing contracts for its road building division and facilitating land acquisition for its property division. The rating is constrained by BDB’s modest business and financial profile, largely due to continued challenging prospects of its main business activity of property development despite some improvement in 2019. The group’s leisure division has continued to drag its overall performance.
The rating agency notes that following a management change in early-2019, BDB undertook business turnaround initiatives that included cost-cutting measures and asset disposals. These efforts led to about RM52.0 million being generated during the period. BDB recorded a 22.0% y-o-y increase in revenue to RM248.2 million and a pre-tax profit of RM6.8 million in 2019 (2018: negative RM39.3 million).
BDB was able to improve property sales during the period through aggressive marketing and en-bloc sales; it also prioritised affordable residential project launches. For 2019, its completed property inventory declined to RM21.2 million from RM39.0 million while the take-up rate for its ongoing property projects rose to 60.0% from 48.0% a year earlier. BDB’s ongoing property projects have a moderate gross development value of RM199.6 million. The performance of BDB’s road building division remained largely supported by its Kedah state road maintenance contract, valued at RM210.0 million until March 2023. Performance of its construction division was driven by the early completion of the Program Perumahan Rakyat (PPR) Ayer Hitam project during the year. BDB has also secured a RM40.0 million contract from the Ministry of Water, Land & Natural Resources Malaysia to undertake a non-revenue water project in Perlis. This project will add to the company’s RM45.9 million construction order book.
As at end-2019, BDB’s total borrowings declined to RM131.6 million (2018: RM156.7 million), following the repayment of some of its term loans and bankers’ acceptances. This led to the group’s debt-to-equity ratio improving to 0.28x (2018: 0.34x). Nevertheless, the group’s borrowings consist mainly of short-term debts which expose the group to refinancing risk. Relative to its near-term debt obligations, its liquidity position is adequate with cash and bank balances of RM75.6 million, translating into a cash-debt cover of 57%.